Page 10 - CSR Issue 2 2021
P. 10


              British American Tobacco beats

           earnings estimates as vaping sales surge

                                                     By Callum Keown

                    British American Tobacco reported full-year earnings ahead of estimates,
                   despite the impacts of Covid-19 as demand for e-cigarettes surged in 2020.
                 However, the FTSE 100-listed company’s outlook for this year and its warning
                     that the global tobacco market could fall around 3% in 2021 concerned
                                      investors as the stock fell more than 4%.

                    he Lucky Hill and Dunhill
                    cigarettes maker said
                    adjusted operating
                    profit rose 4.8% to
          T£11.37 billion in 2020,
          while adjusted earnings per share
          (EPS) grew 5.5% to 331.7 pence,
          ahead of the FactSet consensus of
          330.07 pence. Full-year revenue
          was £25.78 billion, 3.3% growth at
          constant exchange rates, beating
          the FactSet consensus of £25.68
          billion. Cigarette volumes fell 4.5%
          in 2020, but price increases helped
          sales of traditional tobacco products
          to rise 2.8%.

          The revenue beat was largely      also felt a more severe impact     2020. Perhaps most significant is
          driven by the performance of BAT’s   on consumption in a number of   the rate at which people switched to
          “new categories” products, which   emerging markets due to the       tobacco alternatives – the company
          includes e-cigarettes, heated and   pandemic. The company warned     added three million “non-combustible”
          oral tobacco. New categories sales   that the global tobacco industry   product consumers, taking it to 13.5
          rose 15%, led by a 52% jump in    volumes would fall around 3% in    million and closer to its 50 million
          vaping sales, including its Vype   2021, declining to give specific   target by 2030. In among that,
          and Vuse brands. British American   guidance on the key US market,   vaping sales surged 52%. However,
          Tobacco also raised its full-year   which it said was dependent on   investors were left disappointed with
          dividend by 2.5% to 215.6 pence   Covid-19 uncertainties. It expected   the company’s 2021 outlook and the
          per share.                        revenue growth of 3% to 5% this    continuing impact of Covid-19 as the
                                            year and mid-single digit EPS      stock slumped more than 4%.
          However, the company said         growth reflecting “continued
          the Covid-19 pandemic had hit     Covid-19 impacts.”                 Citi analysts said the combination of
          performance, with an estimated                                       the pound’s strengths and Covid-19
          2.5% headwind to revenue in 2020.   Looking ahead                    would likely lead to consensus
          The World Health Organisation and   The tobacco industry’s transition   downgrades. Panmure Gordon
          the US Centre for Disease Control   resembles that of the oil-and-gas   analysts also noted that BAT’s
          and Prevention have warned that   sector as it invests in cigarette   guidance for mid-single digit EPS
          smoking increases the risk when   alternatives amid a gradual decline   growth was lower than its long-term,
          it comes to fighting off Covid-19.   in the popularity of smoking.   high-single-digit growth aim, and
          BAT said travel restrictions had hit   Cigarette volumes continued   lagged behind rival Philip Morris
          sales in its travel retail segment,   to fall but price increases once   International, which has forecast 9%
          while sales in South Africa suffered   again came to the rescue. In fact,   to 11% growth.
          from a government tobacco ban     given the disruption caused by the
          between March and August. It      pandemic, BAT had an impressive    Source: Barrons
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